Approaching 5 years of CFO service in a PE situation that
chose to recapitalization vs sell. PE is minority, founders in early 50’s
control.

As CFO, I hold in-the-money vested equity interests worth
approx. 8 times annual salary at current expected valuation. Payout
requires change of control, however. And there are significant barriers
to exit – it’s essentially “must be present to win”.

Location is undesirable, and with last child graduating
in 1 year, it’s time to think about an exit strategy. Obviously,
want to retain or cash out of equity, but location is a problem on the family
front, and a strong motivation to relocate.

Question

What recommendations do you have to negotiate from this
golden handcuff toward a more desirable financial and geographic outcome?

Options I have been pondering…

Ideally, payout and exit as a “good leaver”, with non-compete. This is contrary to founders and PE partners, who have intimated unwillingness to consider.

Relocate to a commuter/remote situation.

Pitch PE firm to relocate within the portfolio family (I’m regarded very well among all portfolio company CFO’s), and retain equity interests until a change of control.

Bob in Boise

Dear Bob,

The one thing others can learn from this is to make sure when going into a new career opportunity with a PE player, make sure (if possible) that a recapitalization counts as a change in control would for vesting purposes.

Option 1: As CFO, you might be in a position to speak to
potential purchasers that would come up with a price that the founders and PE
couldn’t say no to. That would benefit them (and you), and might get you to
leave with your head held high and your bank account flush with cash. The likelihood of this happening is low, but
you should at least sniff out potential interest without upsetting the owners. Not
easy.

Option 2: You can ask them to consider a remote / commuter
situation. My thought is that this is the most likely situation that will allow
you to continue to grow your equity and keep your family happy. It may be the
easiest solution for the owners to accept, especially if they like you.

Option 3: This could be a good solution. While it might make
your PE firm happy, the original and majority owners may not be thrilled with
this situation and might put up a stink.

Without more information than you’ve provided in your
letter, I would recommend the following approach:

Speak to your PE owners, telling them that you want the company to continue to be successful, but your life situation has changed since you’ve started and you would like to make a change. Be honest and say that you were hoping for a sale rather than a recap, as this would allow you to exit gracefully and earn what you’ve invested over the years. You can ask them to change the deal to include recap to trigger your change of control provisions. They may balk, but your should at least ask and let them know this is your first choice. You can provide them with Option 2 (remote / commute) as the first alternative option once they hesitate and Option 3 (relocating within the PE family) as a second option.

In essence, the owners should know what you want, how you
feel, but not believe that you are holding a gun to their head. Asking for what
you want and providing alternative solutions can lead to a solution that
everyone can accept.

Good luck and let me know how this turns out.

Samuel

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